Cashout Refinance Mortgage Guidelines - Freddie Mac
Cash-out Refinance MortgagesCash out for manypurposesWith this mortgage option, borrowers are able to receive cash out fromthe value of their home to use for debt consolidation or any otherpurpose. This mortgage also allows borrowers to roll all related closingcosts, financing costs, and prepaid items into the new loan amount,further maximizing cash flow potential. In addition, our special purposecash-out refinance mortgage allows borrowers in unique circumstancesto use the proceeds of the refinance transaction to buy out the equity ofa co-owner.The information in this document is not a replacement orsubstitute for information found in the Single-Family Seller/Servicer Guide and/or the terms of your Master Agreementand/or Master Commitment.Publication Number 389September 2012www.FreddieMac.com Refinance borrowers who wantto receive cash from the valueof their home Maximum LTV ratio of 80 percentfor 1-unit primary residences 1- to 4-unit primary residences,second homes, and 1- to 4-unitinvestment properties May use proceeds of therefinance to pay off junior liens orother needs Roll all related closing costs andprepaid items into the new loanamount No seasoning requirement for themortgage being refinanced, aslong as the mortgage does notexceed our maximum loanamounts and maximum LTVratios Provide cash-out to consolidatedebt or for any other purpose Allow borrowers to pay off juniorliens, including HELOCs, pay offa leasehold interest, pay forhome improvements or buy outthe equity of an ex-spouse, jointheir, or joint devisee Eliminate up front costs by rollingin all related closing costs,financing costs, and prepaiditems into the new loan amount
ORIGINATION & UNDERWRITING REQUIREMENTSEligible Property Types 1- to 4-unit primary residence 1- to 4-unit investment property Second homeEligible Mortgages 15-, 20-, and 30-year fixed-rate mortgages 5- and 7-year balloon/reset mortgages Most standard ARMs No seasoning requirement for eligible mortgages and inherited properties. Super conforming mortgages. See Guide Chapter L33 for requirements.Maximum LTV for NewMortgage 1-unit primary residence:o Max. LTV without secondary financing: 80 percento Max. LTV with secondary financing: 75 percento Max. TLTV with secondary financing: 80 percento Max. HTLTV: 80 percent 2- to 4-unit primary residence:o Max. LTV without secondary financing: 75 percento Max. LTV with secondary financing: 70 percento Max. TLTV with secondary financing: 75 percento Max. HTLTV: 75 percent Second home:o Max. LTV without secondary financing: 75 percento Max. LTV with secondary financing: 70 percento Max. TLTV with secondary financing: 75 percento Max. HTLTV: 75 percent 1-unit investment property:o Max. LTV without secondary financing: 75 percento Max. LTV with secondary financing: 70 percento Max. TLTV with secondary financing: 75 percento Max. HTLTV: 75 percent 2- to 4-unit investment property:o Max. LTV without secondary financing: 70 percento Max. LTV with secondary financing: 65 percento Max. TLTV with secondary financing: 70 percento Max. HTLTV: 70 percentSee Guide Chapter L33.3 for LTV/TLTV/HTLTV ratio requirements for super conforming mortgages.Borrower EligibilityRequirements The Seller must make the determination regarding borrower creditworthiness in accordance with the requirements ofthe Guide Chapter 37.4(b), Establishing Borrower Credit Reputation for Manually Underwritten Mortgages. At least one borrower must have been on the title to the subject property for at least six months prior to the note date ofthe cash-out refinance mortgage.Closing Costs, FinancingCosts & Prepaids/Escrows All closing costs, financing costs, and prepaids can be rolled into the new loan amount.Cash Back to Borrower No limit on cash back for cash-out refinances.Special UnderwritingRequirements Loan Prospector (Accept or A-minus) Mortgages, or manually underwritten mortgages. A minimum Indicator Score of 620 unless otherwise specified in the Guide (Loan Prospector A-minus Mortgages areexempt). All mortgages must meet the risk class and/or minimum Indicator Score requirements in Guide Exhibit 25A, whereapplicable. A mortgage placed on a property previously owned free and clear by the borrower is always considered a cash-outrefinance mortgage. At least one borrower must have been on the title to the subject property for at least six months prior to the note date. When an existing mortgage will be satisfied as a result of a refinance transaction, one of the following requirementsmust be met:o At least one borrower on the refinance mortgage was a borrower on the mortgage being refinanced; oro At least one borrower on the refinance mortgage held title to and lived in the property as a primary residence for themost recent 12- month period, and the mortgage file contains documentation evidencing that the borrower either: Has been making timely mortgage and secondary financing payments for the most recent 12-month period Is related to a borrower on the mortgage being refinanced, oro At least one borrower on the refinance mortgages inherited or was legally awarded the property by a court. Mortgage payment history and minimum income documentation in accordance with Loan Prospector creditrisk/documentation class or Guide requirements.
Subordinate Liens Can be paid off from the proceeds of the new loan regardless of purpose; may be subordinated or paid off withborrower funds. Pay off purchase money junior liens secured by the mortgaged premises that were not used in their entirety to acquirethe subject property. Can be subordinated to the first mortgage established by the refinance in accordance with Guide Section 25.2. Can be created at the time of the refinance mortgage and must comply with the requirements of Guide Section 25.1.Special Requirements forSpecial Purpose Cash-outRefinances Freddie Mac considers a cash-out refinance mortgage made to a borrower buying out the equity of a co-owner to be aspecial purpose cash-out refinance mortgage. For these mortgages:o The borrower and co-owner must have jointly owned the property for at least 12 months prior to the loan application.(Parties who inherit an interest in the property are exempt.)o The borrower and co-owner must have occupied the property as their primary residence. (Parties who inherit aninterest in the property are exempt.)o Borrower retaining sole ownership of the property may not receive any proceeds from the refinance transaction.o The borrower and the co-owner receiving the buy out proceeds must provide a written agreement, signed by allparties, stating the terms of the property transfer and the disposition of the proceeds from the refinancing transaction. For our special purpose cash-out refinance mortgages, the borrower is not required to use loan proceeds to satisfyexisting junior liens (including home equity lines of credit) if the liens are subordinated to the new refinance mortgageand meet Freddie Mac requirements.Collateral Assessment The Seller must provide an appraisal with an interior and exterior inspection that meets Freddie Mac requirements.DELIVERY REQUIREMENTSEligible Executions Servicing-released cash* Servicing-retained cash Fixed-rate Guarantor WAC ARM Guarantor MultiLender Swap*See our selling system availability matrix for a list of specific mortgages eligible for sale through cash under mandatorycontracts servicing released and best efforts contracts servicing released or servicing retained.Delivery Requirements See Guide Section 17.21(b) for special delivery instructions for “cash-out” refinance mortgages. Sellers must deliver thefollowing ULDD Data Points:o Loan Purpose Type: “Refinance”o Refinance Cash Out Determination Type: “Cash Out” If the mortgage is a special purpose cash-out refinance mortgage when cash was used by an owner to buy out theequity of a co-owner, Sellers must deliver the following additional ULDD Data Point:o Investor Feature Identifier: “203”Delivery Fees A cash-out refinance postsettlement delivery fee applies, in addition to any other fees assessed based on the individualcharacteristics of the mortgage. See Guide Exhibit 19 for details at www.FreddieMac.com/singlefamily/pdf/ex19.pdf. Freddie Macs cash-out refinance delivery fee is not billed for special purpose cash-out refinance mortgages deliveredin accordance with the requirements of Guide Section 17.18.Learn more about Freddie Mac Cash-out RefinancesRefer to Chapter 24 and Section 17.21of the Single-Family Seller/Servicer GuideCall (800) FREDDIEVisit www.FreddieMac.com